Social Security offers lump sum payments to some beneficiaries
If you need a lot of cash in retirement, Social Security offers a lump sum payment option that’s worth six months of benefits. However, this comes at a cost. It is important to understand the details before accepting payment.
If you waited past full retirement age (66 for those born between 1943 and 1954) to start collecting Social Security benefits, you have the option of claiming back payments. The maximum offered by Social Security is six months of arrears in a lump sum. The disadvantage is that by taking the lump sum, your retirement date and the amount of your monthly benefit are moved back by six months.
When you delay retirement beyond full retirement age, you accumulate “deferred retirement credits” which increase your benefits by 8% for each year you wait, in addition to annual adjustments depending on inflation. By taking the lump sum payment, you lose any deferred credits you had accumulated over the previous six months, so your monthly benefit will be lower than if you did not take the lump sum payment.
The decision to accept the lump sum payment depends on a number of factors, including your life expectancy, your spouse’s needs and what you will do with the new money. Taking the lump sum payment makes more sense if your life expectancy is shorter. In this case, the immediate injection of cash will be more beneficial than larger monthly payments. However, if you are married and earn the most, you will need to consider your spouse’s needs. If you die, your spouse will receive spousal benefits equal to the monthly amount of your benefits. The higher your benefit, the more your spouse will receive.
You should also consider what you will do with the lump sum payment. If you’re paying off high-interest debt or investing in something with a good rate of return, the lump sum might be better than the higher monthly payment.
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Last modification: 18/05/2022